{
  "id": "RL33311",
  "type": "CRS Report",
  "typeId": "REPORTS",
  "number": "RL33311",
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  "source": "EveryCRSReport.com, University of North Texas Libraries Government Documents Department",
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      "source": "EveryCRSReport.com",
      "id": 352037,
      "date": "2009-09-10",
      "retrieved": "2016-04-07T02:17:34.860356",
      "title": "Federal Tax Treatment of Health Insurance Expenditures by the Self-Employed: Current Law and Issues for Congress",
      "summary": "Federal tax law allows self-employed individuals to deduct from their gross income the entire amount they spend on health insurance for themselves and their spouses and dependents.\nThis report explains how these expenditures are treated under the federal tax code, reviews the legislative history of the deduction, assesses its effectiveness as a policy tool for expanding access to health care for the self-employed, describes proposals in the 111th Congress to modify the deduction, and discusses the implications of leading health care reform proposals in Congress for health insurance coverage among the self-employed. \nUnder Section 162(l) of the Internal Revenue Code (IRC), qualified self-employed individuals may deduct the entire amount of their payments for health insurance for themselves and immediate family members. Use of the deduction is governed by several rules. First, it may not exceed an eligible taxpayer\u2019s net earned income from the trade or business in which the health plan was established, less the deductions for 50% of the self-employment tax and contributions to certain pension plans. Second, the deduction may not be claimed for any period when a qualified individual is eligible to participate in a health plan offered by an employer or by a spouse\u2019s employer. Third, the expenditures used to claim the deduction cannot be included in the medical expenses eligible for the itemized deduction under IRC Section 213. Finally, health insurance expenditures by self-employed individuals are subject to the self-employment tax.\nThe tax deduction for health insurance expenditures by the self-employed has advantages and disadvantages. On the one hand, it is relatively easy for the IRS to administer and for self-employed taxpayers to claim, and the deduction comes close to establishing parity between the tax treatment of health insurance for the self-employed and the taxation of employer contributions to employee health plans. On the other hand, the deduction delivers the largest tax benefit for the same insurance policy to those who arguably need it the least: self-employed individuals in the highest tax bracket. It also is uncapped, thus encouraging the purchase of generous plans.\nSeveral bills in the 111th Congress (H.R. 533, H.R. 1470, H.R. 1763, H.R. 3067, and S. 275) would eliminate the final remaining obstacle to achieving equal tax treatment for the health insurance purchased by the self-employed and the health benefits employees receive through their employers. The obstacle lies in the difference between the income base for the payroll taxes paid by wage earners and the self-employment taxes paid by the self-employed: health insurance expenditures by the self-employed are subject to the self-employment tax, whereas employer contributions to employee health plans are not subject to the payroll tax. Each bill would allow the self-employed to deduct these expenditures as an ordinary and necessary business expense, thereby removing them from the income base for the self-employment tax.\nSome of the health care reform legislation being considered in the House and Senate could affect health insurance coverage for the self-employed. Though it remains unclear whether either chamber will pass such a bill in the current Congress\u2014and if so, what tax provisions it might contain\u2014enough is known about the key issues in the congressional debate to sketch their implications for the self-employed. Proposals that would expand private health insurance coverage or simultaneously expand public and private coverage options (e.g., H.R. 3200) could lead to greater coverage among the self-employed through income-based tax subsidies for the purchase of insurance and an individual mandate.",
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      "typeId": "REPORTS",
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    },
    {
      "source": "University of North Texas Libraries Government Documents Department",
      "sourceLink": "https://digital.library.unt.edu/ark:/67531/metadc808709/",
      "id": "RL33311_2008Feb22",
      "date": "2008-02-22",
      "retrieved": "2016-03-19T13:57:26",
      "title": "Federal Tax Treatment of Health Insurance Expenditures by the Self-Employed: Current Law and Issues for Congress",
      "summary": null,
      "type": "CRS Report",
      "typeId": "REPORT",
      "active": false,
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  ],
  "topics": [
    "Economic Policy"
  ]
}